Oft-criticized former Treasury secretary did good job under duress

Say what? Wasn’t the former Treasury secretary a lackey of Wall Street and no friend of the little guy (or gal)? Lots of people think so. Twitter and other Web hot spots were aflame again Wednesday with sniping about Geithner in the wake of news that he’s taken a job at the Council on Foreign Relations. See: Twitter users rush to name Geithner’s forthcoming book.

Liberals are bitter he didn't severely punish banks for financial misdeeds or do more to help ordinary folks in need, such as underwater homeowners who owe more on their mortgages than their properties are worth. Conservatives believe he pushed for too much regulation and federal intervention in the economy.

And who can forget about the tax-payment boo-boo that almost sank Geithner’s nomination in 2009 and earned him the derisive nickname “Turbo Tax Tim”?

In the light of history, the criticism might have merit. Yet it largely misses the point. Geithner — along with Federal Reserve Chairman Ben Bernanke — played a decisive role in 2008-09 to prevent the U.S. from sinking into another Great Depression.

Together they led the way to shore up a keeling banking system, restore calm on Wall Street, and fend off radical initiatives from the left and laissez-faire cries on the right that could have stunted even the mild recovery that has taken hold.

Simply put, Geithner was handed a loudly ticking time bomb with the potential to blow up the economy. He did a good job under incredible pressure to defuse the crisis with the limited government tools available to him at the time.

“Geithner was attacked by the right and the left, each from their own skewed view of matters,” said Robert E. Wright, an historian at Augustana College in South Dakota who has written extensively about America’s economic history.

“But let us never forget that he became Treasury secretary during a very difficult period and should be credited with keeping the financial system and economy together at a time when it seemed that one more shock could unravel it all,” Wright said.

The outcome could have been a lot worse — and there’s no telling if his expected successor, budget guru and longtime Obama lieutenant Jack Lew, will follow Geithner’s carefully calibrated approach.

Not the usual type

Geithner wasn't a natural fit. Virtually every secretary in the past century has been a well-known businessman, high-powered financier or deeply experienced politician. And most were older than Geithner — he was named secretary at age 48 — when they took office.

Geithner, for his part, spent his entire career in public service, working his way up the ladder in a variety of financial positions at home and overseas. He didn’t shuffle from the public and private sectors like most of his predecessors, earning big money between government gigs.

So he was a virtual unknown nationally when President Barack Obama nominated him in 2009, and some critics questioned his alleged lack of gravitas (Wall Street and Washington both love the idea of gravitas).

Nor was Geithner a terribly compelling personality. Somewhat diffident and soft-spoken, he could appear alternately tentative and abrasive in public, especially early in his tenure. He rubbed some people wrong, such as members of Congress.

Even nominal ally Christine Lagarde, chief of the International Monetary Fund, has said Geithner could be “a little bit irritating.”

His low profile almost cost him. The nomination brought to light the fact that Geithner failed to pay some federal taxes a decade ago when he worked at the International Monetary Fund. The parsimonious Geithner — not a bad trait in a Treasury secretary — used tax-preparation software to complete his own returns.

The episode made Geithner the butt of late-night TV jokes, but the president stuck by him. He won confirmation in a 60-34 Senate vote.

Geithner’s long background in government finance made him a good candidate for the Treasury job, especially given a thin Democratic bench. He was the head of the New York Federal Reserve from 2003 to 2008 and was intimately involved in the rescue of Wall Street and the U.S. economy in the waning stages of the Bush administration, working side by side with Bernanke and Bush’s Treasury secretary, Henry Paulson.

Many critics say Geithner contributed to the panic in the autumn of 2008 because of lenient treatment of Wall Street as New York Fed chief. Maybe so, but he was just one of many people in positions of authority who might have been able to forestall the panic but failed to do so. The list of the guilty extends back to the 1990s and includes dozens of financial and political luminaries of all persuasions.

The truth is, almost no one saw the panic coming.

Eyewitness to meltdown

In any case, Geithner’s ordeal gave him a closer look at the problems facing Wall Street and the economy than almost any Democrat whom Obama could have chosen. He was able to quickly pick up where Paulson left off and provide stability during the precarious transition from the Bush to the Obama presidencies.

That is a critical point. One reason the first phase of the Great Depression was so terrible was a poor handoff from the Hoover administration to Franklin Roosevelt between the November 1932 election and FDR’s taking office in March 1933. The economy plunged to its worst depths during the four-month interlude because of a lack of direction.

Geithner provided direction almost from the outset. He launched a high-profile series of “stress tests” to gauge the soundness of U.S. banks, reprising an approach used by the Roosevelt administration in 1933. Banks were closed by Roosevelt during a national “bank holiday” and only allowed to reopen if they proved their credit-worthiness.

Reuters

Jack Lew, previously the White House chief of staff, is President Obama’s nominee to succeed Timothy Geithner as Treasury secretary.

Just as in the Great Depression, the 2009 stress tests showed that most banks were OK. The ones in trouble were required to raise capital to shore up their balance sheets.

The move restored confidence in the U.S. banking system and put Wall Street on the road to recovery. Europe took note and adopted a similar tactic in its financial crisis a few years later.

“I don’t get all the anti-Geithner sentiment,” economics professor Justin Wolfers of the University of Michigan tweeted Wednesday. “How many of us are confident that we would have done a better job? Different, yes. But better?”

Almost as important, Geithner was a calm, centrist voice in an Obama administration that might have pursued more populist measures if not for his presence.

At the height of the panic, for example, some leading liberal economists such as New York Times columnist Paul Krugman called for the government to nationalize struggling banks or pursue other far-reaching solutions. Such a tactic might have ended in disaster, but Geithner warned the president off, and Obama trusted his new secretary to pursue a more traditional strategy.

That is what he did. Geithner charted a steady course through the economic wreckage of the worst recession in more than 70 years, as he (and predecessor Paulson) confronted more challenges than any Treasury head of the modern era.

“He was very good at understanding the mechanics of how things work and how things need to get done,” said Steve Blitz, longtime economist ITG Investment Research. “For a nuts-and-bolts guy, he was very competent.”

What critics say

Geithner’s other moves to restore the economy weren’t very successful, such as curbing huge U.S. deficits or fixing the battered housing sector. Yet those are complicated problems whose solutions no secretary could solve without broader public and political support outside of the Treasury building.

Geithner doesn’t stand shoulder to shoulder with giants like Alexander Hamilton or Albert Gallatin, two secretaries early in the republic who built the financial edifice responsible for the nation’s modern-day economic success. But he’s one of the few to serve with distinction among the many mediocrities who’ve held the post.

Obama himself listened to other voices in the White House when designing a controversial stimulus in 2009 and crafting other economic initiatives. Geithner had the president’s ear, but his wasn't the only voice. That was more a reflection of Obama’s governing style than any lack of faith in his Treasury secretary.

Another complaint about Geithner revolves around his role in the Dodd-Frank Act, the Wall Street reform legislation that he supported. The complicated 848-page law hits almost every area of the financial industry, but it was really the handiwork of a Democratic Congress touchy enough about its own institutional power not to take dictation from the Treasury.

Opponents in the financial industry and on the political right say Dodd-Frank has cost jobs, made it harder for banks to provide loans and still won’t prevent government bailouts if large financial institutions fail.

The last accusation — that banks are still too big too fail — is also a mantra of Geithner’s liberal critics.

“His doctrine of ‘overwhelming force’ over the past four years can be translated into plain English as ‘unconditional bailouts for big banks,’ ” former IMF chief economist Simon Johnson wrote in recent Bloomberg column.

Only time will tell if those criticisms are on the mark. The economy could enter another boom eventually and vindicate Geithner. Or Wall Street could blow up again and the U.S. would fail to achieve the kind of growth Americans are used to.

If neither happens, the historian Wright said, Geither will probably fade into obscurity like most of the nation’s 75 Treasury secretaries.

That is too bad. Geithner doesn’t stand shoulder to shoulder with giants like Alexander Hamilton and Albert Gallatin, two secretaries early in the republic who built the financial edifice responsible for the nation’s modern-day economic success. But he’s one of the few to serve with distinction among the many mediocrities who’ve held the post.

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